* For Reuters Live Markets blog on European and UK stock markets, please click on: (Updates with U.S. afternoon trading)

By Lewis Krauskopf

NEW YORK, May 13 (Reuters) - Global stock markets tumbled on Monday and the Chinese yuan fell to its lowest level since December as the trade dispute between the United States and China escalated.

MSCI’s gauge of stocks across the globe shed 2.05%, on pace for its biggest one-day drop in more than five months as it touched a two-month low. Wall Street’s main indexes tumbled well over 2.5%.

China said it would impose higher tariffs on a range of U.S. goods, striking back in its trade war with Washington shortly after U.S. President Donald Trump warned it not to retaliate in the long-running trade dispute between the world’s two biggest economies.

Investors piled into safe-haven assets, including U.S. Treasuries and the Japanese yen.

“It’s clear that there is a lot of nervousness around the U.S.-China trade negotiations and concern that it’s really deteriorating pretty significantly and that’s impacting all areas of markets,” said Kristina Hooper, chief global market strategist at Invesco in New York.

China’s finance ministry said it plans to set import tariffs ranging from 5 percent to 25 percent on a target list worth about $60 billion. Trump on Friday ordered his trade chief to begin the process of imposing tariffs on all remaining imports from China, but investors had taken solace in some comments from officials about the negotiations.

“The market thought it was positioning and at the end of the day there would be a deal and that over the weekend they would work things out and that is clearly not the way this thing is going,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

On Monday, the Dow Jones Industrial Average fell 692.83 points, or 2.67%, to 25,249.54, the S&P 500 lost 77.03 points, or 2.67%, to 2,804.37 and the Nasdaq Composite dropped 276.86 points, or 3.5%, to 7,640.09.

The pan-European STOXX 600 index lost 1.21%.

In currencies, the yuan weakened to as far as 6.92 against the U.S. dollar, its lowest level since Dec. 24.

The dollar index, which measures the greenback against a basket of currencies, fell 0.03%, with the euro up 0.01% to $1.1234.

U.S. Treasury yields fell to six-week lows as investors piled into low-risk assets.

Benchmark 10-year notes last rose 17/32 in price to yield 2.3944%, from 2.455% late on Friday.

Ten-year yields fell below those on three-month Treasury bills. A sustained inversion of this part of the yield curve has preceded every U.S. recession in the past 50 years.

Spot gold added 1.1% to $1,299.97 an ounce.

Oil futures fell as worries about the trade talks spooked investors, who had initially sent oil higher on concerns that tanker attacks in the Middle East could disrupt supplies.

U.S. crude fell 1.41% to $60.79 per barrel and Brent was last at $69.82, down 1.13% on the day.